Should I just quit? Am I the only intelligent person left in America (from the actual evidence, only a slight exaggeration)? Yes, I am talking about today's fictitious movement in the price of oil in the futures market, which was headlined in the mainstream media (at least some of it) as the biggest one day rise ever in the price of oil. It was all fiction (both the actual price rise and the media reports).
Bill O'Reily again exposed himself as a major pinhead by saying that the $16.00 (or whatever) "rise" in the price of oil proved his point on oil speculatiors, as he asserted that oil speculators resumed their attempt to manipulate the price of oil today. That was a lie. CNBC actually got it right, although unable to resist the headline about it being the biggest rise in the price of oil ever in a single day. Again, you are a major pinhead if you care so little for the truth that you make such a big deal out of the fictitious movement in the price of oil today. Nope. Just because the price movement was based on something other than the "real" price of oil, it does not mean that today represented real manipulation in the ongoing price of oil My challenge: Can I explain this in a way even a major pinhead like Bill O'Reilly can understand it? Probably not. I can but try.
What happened? Well, let me give you a hypothetical. Say that you have contracted to deliver 1000 head of cattle in El Paso on September 22, and you had to make delivery on that date or face incredible penalties. Say cattle were selling for a cash price across the nation for 104 dollars a head, but that there were really only about 1000 cattle available for sale in all of El Paso, and that those sellers knew that you were caught in a squeeze (or that people owning those 1000 head did not really want to part with them at the national "market" price). What would happen? You would have to pay an outrageous price to cover your contractual obligation. This would have nothing to do with the price of cattle tomorrow, or any "speculatiors" manipulating the price of cattle for the public generally. Rather, it would have to do with one speculator (contract to sell cows you did not have) being taken advantage of by other "speculators" (who actually had cows that you needed). This is basically what happened in oil today.
Today was the expiration date for the October contract in oil futures. Tomorrow, the November contract goes into effect as the operative contract. What happened was that some speculators in the oil futures market got caught with contracts that they had to "unwind" (cover). That meant that they were forced to buy October contracts at almost any price to cover their positions. As CNBC reported, and it was not secret, the November contract is selling for around $108.00 a barrel--up, but not nearly that much ($4.00 from yesterday's October contract price). In other words, the "record" one day price "rise" in oil was a total fiction (except for those--speculators themselves--who had to buy October contracts today. Others could buy November contracts, or buy on the cash market.
Isn't this "manipulation" in the price of oil? Not really. It has nothing to do with what people could buy oil at today. It definitely has little to do with what people will be able to buy oil at tomorrow, when the October contracts will no longer exist. This is called a "short squeeze", and affects no one but speculators (especially when it happens on the day a contract is expiring, like today). Anyone, like Bill O'Reilly, who pays major attention to today's price movement does not understand what is going on (as O'Reilly did not, unless he did and was simply ignoring the real facts, which I think he is capable of). Today's price movement in oil was only "manipulation" in the one day futures market for the expiring October contract: "manipulation" in the sense it was a fictional price, but one that should not have affected anyone but speculators who play the high risk game of being caught short on this kind of trade on the last day.
Okay. you should now realize that today's movement in the "price" of oil (really just the October contract) was fiction (of minimal significance, except to show why you should pay no attention to one day price movements in anything, and why you should be a hard core speculator who knows what he is doing to play the futures market down to the wire). You should now realize that any people in the mainstream media who made a big deal out of this headline are stupid. You should now realize that Bill O'Reilly is a major pinhead. You should further realize that this kind of media overreaction may cause speculators to think they can get a higher price tomorrow because of the media hysteria (although probably not, because the people in this market are smarter than media people). However why is the price of oil going back up (as it is, even if you take the fiction out of today's misleading price movement in an expiring contract).
The answer is simple. See my entries on Bernanke and Paulson. The U.S. government is about to print maybe a trillion dollars we don't have to "finance" the bail out of our financial system. That has caused the dollar to weaken, in the expectation that inflation (happens when the government prints money) is going to dilute the value of the dollar. When the dollar goes down, the price of oil in dollars goes up. In addition, the futures market acts on expectation, and the expectation is that oil, gold and other commodoties are now "safer" places to be than investing in the U.S. dollar. That means demand for investments in oil and gold, and a falling demand for the dollar. "Speculation", in a manipulative sense, has nothing to do with it.
I am no fan of the way computers have affected the way markets work, or don't work, these days. But the price of oil is acting perfectly rationally over the past few days (ignoring the short squeeze today, which is immaterial to any discussion of the "real" market price of oil
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